How to Build a Foreign Exchange Trading Portfolio

This article looks at how to build a successful foreign exchange trading portfolio.

All successful traders are able to present a strong foreign exchange trading portfolio, but to create such a portfolio there are certain factors you must consider. You must examine what you should place in your portfolio, and how you are going to develop it. Creating a portfolio is not easy and requires planning for completion; therefore, it is important you are realistic regarding your portfolio goals and how you are going to reach them.

1. Finding the best currencies

The foreign exchange trading market allows for all global currencies to be traded; it is important you find the most suited to your level of experience. It is highly recommended that new traders utilise the major currencies as initial trading pairs, but once you have ‘eased’ into the market you should look at the pairs you are most comfortable with.

Another factor which must be looked at when choosing a currency pair is time commitment. The majority of currencies are best traded in particular market sessions, therefore you must determine whether or not you will be able to trade during your chosen currency pair’s most effective trading period. If not, you should consider looking at another option.

2. Choosing the trading style

To trade the foreign exchange trading market you will require a trading platform and a trading strategy. To determine your type of trading, it is necessary you establish which trading timeframe you prefer – short-term, medium-term or long-term. This is required as each timeframe has separate associated trading strategies.

The short-term foreign exchange trading strategies include all the day trading strategies, such as short-term trend trading and scalping. These strategies are those that complete trades during the day and will not hold positions overnight. They are more suited to impatient individuals who are unable to see a profit develop over time.

Medium-term trading refers to swing trading. This is similar to day trend trading, however swing traders are able to hold their trades overnight. These traders are more patient than the short-term traders, but not so patient that they will leave trades open for more than two days at most.

The long-term trading strategy is also known as a positions strategy. This is best suited to a patient and disciplined individual who is willing to see a profit develop over time. These traders will hold positions for weeks or even months.

3. Preparing your foreign exchange trading capital

When you begin trading live you must open a forex trading account. You will then be required to deposit a certain amount of capital on which you will be executing trades. It is recommended that you deposit only one trading amount at a time. This should be done in case you lose the entire amount, then you have the second amount on which to trade. All forex trades come with risk so it is possible that you may face account depletion. It is recommended that beginners limit the amount in their accounts when transferring from a demo account.

4. Conduct periodic reviews

It is recommended that you review your portfolio on a regular basis. This is to ensure that your trading goals are still relevant and you are still working towards them.